I'm just making sure I understand this correctly, since I'm new to Bitcoin.

Lets say there is an Electrum wallet created, but on a machine which was never connected to the internet. This machine is then destroyed/lost/stops working.

The wallet, along with any funds which were sent to it, can still be recovered, as long as one has kept the seed? So this means that the private key is derived from the seed (this is what the deterministic aspect refers to?).

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Yes, the private key(s) can be derived from the seed. That's the point of deterministic wallets. The wallet that generated the seed does not need to be connected to the Internet in order for the seed to work.

The BIP32 wiki page explains the actual algorithm used to generate a very large number of private keys from a smallish seed.